Euro Underperforms

The markets are nervous, five G10 central banks meet in the next three sessions.  December WTI holds above $100 a barrel as Iranian attacks continue. Israel goes to the polls today, while top security officials from Saudi Arabia, Pakistan, and Türkiye meet Iranian leaders in Tehran to see if another round of US-Israeli attacks can be averted. The market will also keep on eye on Brazil to see if yesterday's sharp sell-off in response to the unexpected election results will be embraced as a new buying opportunity. 

The dollar is firmer against most of the G10 currencies.  Renewed pressure on peripheral bonds in Europe, including France, helped drag the euro lower.  It is the weakest of the G10 currencies. After posting a bearish outside down day yesterday, today could be the first session this year that the euro will not trade above $1.12.  The US economic calendar features durable goods orders, house prices, new home sales, and the Conference Board’s consumer confidence measure.  The FOMC and the Bank of Canada meet tomorrow.  The market is comfortable with the Fed on hold until December after last month’s hike.  Hawkish comments from the governor of the Canada more than a week ago, spurred expectations that the Bank of Canada will initiate its tightening cycle tomorrow. 

Prices 

G10

• After stalling near $1.1225 in the Asia Pacific session yesterday, the euro bled lower in Europe and North America.  It reached a seven-day low near $1.1175. Follow-through selling today as tensions re-emerge in the European bond market sent the euro to $1.1135 in Europe. There is little in the way of a retest on the year’s low recorded in the middle of the month near the $1.1110 retracement objective. A break of it could spur a move toward $1.10 initially, but the next retracement is near $1.0880.

• Before the weekend, the dollar held above the (50%) retracement target of the gains from the low early last month against the Japanese yen (~JPY156) and recovered to almost JPY157.65 yesterday. It has crept up to almost JPY157.90.  The greenback has spent most of the month straddling the JPY158 area. Options for ~$1.65 bln at JPY157.85 and ~$1.25 bln at JPY158 expire today. 

• Sterling slumped to slightly below $1.3330 yesterday and continued selling today pushed it to around $1.3310. Options for around GBP455 mln at $1.3300 expire today. We anticipate initial support in the $1.3280-$1.3300 area, and then around $1.3250.  Nervousness ahead of tomorrow’s budget may keep buyers sidelined today. 

• The Canadian dollar fell yesterday for the first time in eight sessions. The US dollar approached a retracement target near CAD1.3965 before the weekend and settled slightly above CAD1.40.  Initial gains brought the greenback to about CAD1.4055 before pulling back to almost CAD1.40 early in the NY afternoon yesterday. It is consolidating quietly in a roughly CAD1.4010-CAD1.4030 range today.  The Bank of Canada meets tomorrow, and the swaps market has almost an 85% chance of a hike priced. 

• The Australian dollar stalled yesterday after making a new high for the month around $0.7040. It set the session low in early North American turnover slightly in front of $0.7010.  It continues to consolidate within the recent range, holding between $0.7010 and about $0.7035 so far today. Options for A$1.3 bln at $0.7030 and A$720 mln at $0.7015 expire today. 

EM 

• The dollar set the high yesterday against the Mexican peso as the market reacted to the initial surprising news from the Brazilian run-off election. The dollar poked briefly above MXN18.76 and traded choppily until the North American session.  It was sold to almost MXN18.5250 late in the NY morning. The greenback has come back a better bid today and has returned to almost MXN18.61. Initial resistance may be around MXN18.65 today. Yesterday, in response to the election, the dollar soared to almost BRL5.6050 (after it settled last week slightly below BRL4.98.  It backed off and briefly traded near BRL5.39 in late dealings. There is a sense that the market exaggerated, but some investors want to see the new cabinet appointments first. 

• The yuan continues to grind higher against the dollar.  The greenback eased to CNH6.6670 against the offshore yuan and slightly below CNY6.6680 against the onshore yuan. The dollar made a marginal new low against the offshore yuan, near CNH6.6665 today. And the PBOC set the dollar’s fix at CNY7.7171 (CNY6.7162 yesterday). Bloomberg’s survey found a median forecast of CNY6.51 for the end of next year.  Subjectively, we are anticipating something closer to CNY6.40. 

• The dollar consolidated against the Indian rupee today in the upper end of yesterday’s range.  It traded between about INR95.0875 and INR95.2450 today. The rupee settled slightly firmer today to snap a three-day decline. 

Other Markets

• US equities indices closed firmly yesterday and above opening levels. The Philadelphia Stock Exchange Semiconductor Index gained almost 3% yesterday, its largest rally in a little more than a month.  Most of Asia Pacific’s largest bourses rose today, led by South Korea’s 3.1% rally. China, Hong Kong, India, and Singapore were notable exceptions. Europe’s Stoxx 600 is treading water, while US equity futures are slightly firmer. 

• Benchmark 10-year yields were mostly lower yesterday.  France’s 12 bp decline led the way, and Italy’s 10-year yield pulled back almost nine basis points.  The 10-year Treasury yield mostly held below 5% and settled near 4.99%. It is still there now.  European bonds are mixed today but the peripheral premiums, including France, are wider.  

• Gold recorded an inside day yesterday as it remained within the pre-weekend range (~$3978.30-$4026.50). It finished firmly but is trading within yesterday’s range today. It must re-establish a foothold above $4100 to be meaningful. Silver also recorded an inside day (last Friday’s range was ~$53-$54.75).  It slipped to a new low (~$52.65), today before steadying. A close above $55 would help stabilize the technical outlook. 

• December WTI held above $100 a barrel yesterday and settled firmly even if a little below last week’s close (~$103.25).  The pre-weekend high was slightly below $104.  It is trading inside yesterday’s range (~$100.35-$103.15). The price action looks constructive. 

Data

• The US economic diary is busy today, with September durable goods orders that likely bounced back with the help of a surge in Boeing orders (165 gross orders vs. 15 in August). However, excluding defense and aircraft, durable goods order may have slowed after rising 1.6% in August. House prices are seen edging up in August. The Conference Board’s October measure of consumer confidence will be reported. It is seen softening. September new homes sales are expected to unwind the lion’s share of August’s 6.4% increase.  The data will overshadow the Richmond and Dallas Feds’ October surveys.

• Mexico reports the September trade figures. In the first eight months of the year, Mexico recorded a $9.8 bln surplus.  In Jan-Aug 2025, Mexico recorded a trade deficit of almost $915 mln. 

• The eurozone reported money supply growth and September lending figures. M3 growth was steady at 3.5% year-over-year. The ECB reported that banks have tightened credit conditions and that demand for loans slackened in Q3. Higher rates and weaker demand from small and medium-sized businesses were the main culprits. 

• Australia reports September and Q3 CPI tomorrow.  The monthly CPI is expected to rise to 4.2% from 4.0%.  The quarterly readings are expected to rise by 1.2%, or twice the increase seen in Q2. The underlying trimmed mean looks steady around 3.6%. 

• Japan reported September services PPI rose to 3.7% after the August series was revised to 3.5% from 3.7%. This matches the cyclical high recorded in June 2024. 

• China reported 14.4% rise in industrial profits year-over-year after a 4.2% increase in August.  Year-to-date year-over-year industrial profits rose 15.5% after rising 15.7% in August. 

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